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The mother of all workouts

The Federal Housing Finance Agency, which took over mortgage giants Fannie Mae and Freddie Mac in September, just announced a new plan to modify troubled mortgages nationwide.

“Foreclosures hurt families, their neighbors, whole communities and the overall housing market,” agency director James Lockhart said in announcing the plan. “We need to stop this downward spiral.”

Agency officials were joined by colleagues from the Treasury Department, the Department of Housing and Urban Development, Wells Fargo & Co. and Hope Now, an alliance of mortgage companies that the Bush administration organized last year.

The program, which is scheduled to start by Dec. 15, is open to borrowers who have missed at least three payments, live in the home as a primary residence and have not filed for bankruptcy. It will bring payments down to no more than 38 percent of a household’s monthly gross income through a mix of reducing the interest rate, extending the life of the loan, deferring payment on part of the principal and customized steps, if needed.

To encourage participation, the government will pay servicers $800 for each loan modified through the program. To be considered for the program, borrowers should contact their loan servicers.

More than 4 million American homeowners, or 9 percent of borrowers with a mortgage were either behind on their payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.

Fannie Mae and Freddie Mac own or guarantee almost 31 million mortgages, about 58 percent of all single-family loans, Lockhart said. “Although these mortgages only represent 20 percent of serious delinquencies, I believe their leadership role combined with the many partners of HOPE NOW should spread this approach throughout the whole mortgage loan servicing business.”

Many of the most-troubled loans were in the subprime market, which is separate from Fannie Mae and Freddie Mac. Lockhart called on other loan servicers and investors “to rapidly adopt this program as the industry standard.”

Bank of America (which owns Countrywide Financial Corp.) and JPMorgan Chase & Co. recently announced expansion of mortgage modification programs. On Monday, Citigroup announced a halt on foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments.

Note: This is a seattlepi.com reader blog. It is not written or edited by the P-I. The authors are solely responsible for content. E-mail us at newmedia@seattlepi.com if you consider a post inappropriate..